General Average is one of the more interesting and yet misunderstood laws involved in the international trade industry.
What is General Average, and why would an importer or exporter need to consider it in their risk management portfolio. For more information on the effects on importers, take a look at our article titled General Average and What It Means for Importers.
The open ocean is a powerful and sometimes unpredictable co-worker. History has repeatedly shown that even the most artfully constructed oceangoing vessels, piloted by seasoned, expert captains can run into unforeseen trouble on a voyage. Add valuable cargo to the equation and the situation gets much more complicated. The law of General Average addresses a very important question: Who is liable if there is damage to a ship or the goods it is carrying?
The ocean answers no one; it makes its own rules and can change them on a whim. A ship’s captain (except in the case of negligence) has little control over the environmental threats to the crew, the vessel, or the cargo faces.
Sometimes jettisoning cargo is a necessary action to take in order to save ship and crew. There is no effective way to determine beforehand which piece of cargo will be jettisoned if there is trouble on the high seas, and there is no way to guess when and/or where that trouble might occur. Therefore, the risk is spread amongst all the owners of the cargo.
The law of General Average states that the cargo owners share joint liability for all the goods in transit, as well as damage the ship/crew takes on its journey and any fees associated with returning a crippled ship to safe harbor.
Some marine cargo insurance policies offer General Average protection for cargo owners. If a General Average situation should occur, the insured party’s portion of the claim is covered. Without General Average protection, the cargo’s owner is fully liable for their portion of the claim. Importers and exporters should know whether their marine insurance policy includes General Average protection; if it doesn’t, they may want to consider adding it.
For a real-life example of a disaster at sea that resulted in a GA claim, read A Story of General Average and the M/V MSC Sabrina
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Editor’s Note: This post has been edited by Meredith Lambert to include infographics and updated information in March 2018.
